Contract Review

What Is Contract Review?

Contract review is the process of a lawyer reading and understanding a written legal contract on behalf of a client to analyze the legality of the terms to make sure they are fair. This process is typically done on a line-by-line basis, and may include redlines or comments by the lawyer to improve the terms for their client. Contract review lawyers also look for loopholes to make sure clients are protected once you sign the contract. A lawyer reviewing a contract may complete a few different key tasks, including:

• Initial consultation to learn about your priorities
• Reading and analyzing the contract
• Explaining the contract to a client
• Answering client questions
• Suggesting changes that would be in your best interest
• Giving tips on how to best negotiate with the counterparty

Who Typically Needs Contract Review?

Contract review services can be used by many different parties, since legal contracts are used in everyday life for businesses and individuals. Reviewing a legal contract on behalf of a business or an individual consumer will protect their legal interests and rights. Whether it's a business agreement or a personal contract, having a lawyer review these documents ensures that your rights and interests are protected.

• Businesses: Companies often need legal review when dealing with contracts involving customers, vendors, employees, contractors, investors, and lenders. For example, a business may have its lawyer review vendor agreements, employment contracts, or investment documents to minimize risk and ensure the terms align with business objectives.
• Individuals: On the personal side, individuals frequently require contract reviews for real estate transactions (e.g., lease agreements), employment contracts, prenuptial/postnuptial agreements, or estate planning documents. These reviews help individuals understand the terms and protect their rights before making significant decisions.

Who Reviews Contracts?

Contracts are typically reviewed by licensed attorneys and lawyers. Some of these legal professionals may only work with contracts and call themselves transactional lawyers, having the training and experience to guide clients through a transaction and make sure they are best protected.

Given contracts can range across different practice areas (e.g., employment, business, family, etc.), many contract lawyers have specific areas they focus on. For example, a lawyer may be very well versed in finance and investment, and only help clients that are raising money from investors or dealing with lenders to finance their business. Another example would be a family law lawyer who only works with clients on a prenup or postnup.

All these lawyers will have the specific training and knowledge that will be valuable to their client, especially with larger transactions with big implications.

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Contract Review Process

The contract review process can vary depending on the lawyer and the type of project involved. For example, one client may only have a few specific questions about a contract with no need for redlines. Another client may want to hire a lawyer to review the contract, redline it, and help with negotiations until it is signed. This process will be driven by the type of work needed and size and importance of the transaction.

Below are some common steps you may find in the contract review process:

1. Initial Consultation: A lawyer will typically want to set up an initial consultation with a client to learn about their requirements. They may want to understand details about the transaction the client is involved in, as well as their priorities and concerns about the contract. This information is valuable to a lawyer so that they know what to focus on during their review and how they may edit it to fit their client’s priorities.
2. Reviewing the contract: A lawyer will review the contract, typically line-by-line, to learn what each clause includes and terms that are outlined.
3. Call to discuss findings: One a lawyer has reviewed the contract; they may want to have a call with their client to go over their findings. At this point, they can answer any questions the client has, discuss the details of the contract terms, or address any specific concerns. The lawyer may also ask if the client wants them to redline the agreement to make the terms more favorable or legal.
4. Redlining and commenting: Once a lawyer has discussed with their client, they may be asked to insert redlines or suggested edits using tracked changes that may be more favorable to the client or better protect their rights.
5. Negotiating the contract: When redlining is complete, a lawyer may negotiate a contract on behalf of their client. This is called contract negotiation. This involves the lawyer working with the counterparty (e.g., other side of the transaction) to negotiate terms until they both mutually agree on the final version of the contract. Note, this can go on for multiple rounds and take a while.
6. Signing the contract: After all parties to the agreement understand the terms of the contract and agree, everyone will sign the contract.

What Types of Contracts Should Be Reviewed?

It's a good idea to have any type of contract reviewed before you sign it. It is particularly important if the contract has big implications, like a house purchase, so that you are legally protected. Some common kinds of legal documents that require review include:

Employment Contracts

Employment contracts involving hiring someone to begin a new job or position. Key details of these contracts include:

• Benefits
• Compensation
• Exclusivity
• Intellectual property
• Job description
• Job security
• Non-compete clauses
• Non-solicitation clauses
• Start and end date
• Termination cause

Here is an article about employment contracts.

Freelancing Contracts

Freelancers may want to review larger contracts or contracts they plan to use frequently. Details reviewed will include:

• Deadlines
• Ownership of work
• Payment amounts
• Revisions
• Scope of work
• Termination

Real Estate Contracts

Many documents are involved with the selling, purchasing, or leasing of property. Examples include:

• Bills of sale
• Deeds
• Legal descriptions of property
• Mortgage loan documents
• Plot of land surveys
• Titles
• Title insurance

Here is an article about real estate contracts.

Purchase Agreements

Purchase agreements are contracts that transfer property such as vehicles, real estate, or other tangible assets from one party to another. Purchase agreements may involve many of the documents listed under real estate contracts as well.

Image via Unsplash via cytonn_photography

What a Contract Review Lawyer Looks for During a Contract Review

A lawyer will look for many key details when reviewing a contract. Their goal is to make sure their client is legally protected and happy with the terms after they sign the contract. This includes:

• Deadlines: If a task or tangible asset is due at a certain point, the contract should make this clear.
• Dispute resolution: A contract should clearly explain how parties can resolve disagreements that might arise over the course of the agreement.
• Blank spaces: A contract review will ensure you have not left any blanks unfilled in the contract. Though that may seem obvious, checking that all blanks have been filled in is very important. If you leave a space blank, someone could go back in and fill in something you would not otherwise agree to.
• Indemnification: Most contracts should have mutual language for indemnification. If a contract review reviews that only one party to the agreement is indemnifying, a lawyer will usually recommend you have that clause removed unless indemnification can be made mutual. Mutual language is important to include even in cases when one party could not be the cause of liability.
• Renewals: If a contract could be renewed automatically, the contract should specify whether or not you agree to automatic renewals.
• Representation: A contract should not give or accept any information that you do not know to be true.
• Responsibilities and rights: A contract should clearly explain what each party is entitled to as well as the obligations each party must fulfill.
• Risk allocation: A contract should detail how risk is allocated. Otherwise, you could run into a financial problem or another type of problem without clear guidance about who is at fault and how to fix the issue.
• Parties involved: A contract should use complete names to avoid confusion and list everyone involved in the agreement.
• Termination: A contract should specify possible causes for termination, detailing when, how, and under what specific terms a contract may end. A contract review will make sure the document contains appropriate language that defines the terms and process for breaking that contract.
• Terms: A contract is only a starting point, opening the possibility for further negotiation. You can negotiate terms you are not satisfied with. A lawyer reviewing the contract can point out terms that are not in your best interest. A lawyer will also check that all business terms used in the contract are accurate and legal.
• Warranties: Likewise, warranty terms should be clear in the final contract.

Common Mistakes Made During Contract Review

There are many common mistakes that can be made throughout the contract process. Below is a summary to review to make sure you do not make any of these mistakes:

• Signing a contract without reviewing its terms.
• Using a non-lawyer to review a high-value contract.
• Hiring a lawyer to review a contract without getting an idea of costs ahead of time.
• Thinking all contracts aren’t negotiable.
• Redlining and pushing back on non-important terms, which can blow up deals or trigger high legal bills.
• Filling out a contract template incorrectly without having a lawyer look at it.

Contract Review Checklist

A checklist helps ensure nothing is missed during a contract review. Follow these steps:

1. Identify Important Clauses: Understand the most crucial terms and where they appear in the contract (e.g., compensation rate, benefits, and termination clauses in an employment contract).
2. Flag Complicated Language: Mark any sections with overly complex language for further clarification.
3. Confirm Important Dates: Check all relevant dates, such as deadlines and renewal periods, to ensure they match expectations.
4. Verify Key Numbers: Double-check all important figures, such as purchase prices or interest rates, for accuracy.
5. Check Regulations: Identify any regulations mentioned in the contract and make sure you understand their implications.
6. Look for Blank Spaces: Ensure there are no unfilled blanks in the contract template to prevent unauthorized changes.
7. Review Termination and Renewal Clauses: Confirm the terms for contract termination and renewal, ensuring they align with your expectations and rights.

Contract Review Example

Let’s use an example of reviewing a commercial lease agreement for a business owner looking to rent a new retail space.

Paul, who runs a workout class program, finds a perfect space and negotiates baseline terms with the landlord. Realizing the complexity and the financial commitment involved, he hires Cheryl, a commercial real estate lawyer, to review the lease. Cheryl follows these steps:

1. Initial Consultation: Cheryl learns about Paul’s business needs and the terms he negotiated. This allows her to ensure the lease reflects Paul’s priorities and offers the necessary protections.
2. Review and Findings: Cheryl reviews the lease clause-by-clause, noting any clauses that could impact Paul’s ability to modify the property or manage escalating rent costs.
3. Discussion and Redlining: Cheryl discusses her findings with Paul, highlighting issues and proposing changes. She then redlines the lease, adjusting the terms to allow for property modifications and adding favorable renewal terms.
4. Negotiation and Signing: Cheryl sends the revised lease to the landlord’s lawyer for review. After negotiating and agreeing on final edits, she approves the lease for Paul to sign.

Do You Need to Get a Contract Reviewed?

Contract review is an important component of any agreement made using a contract. This includes both business and personal contracts. If you're making a decision using a contract, you want to make sure you do not have a legal issue later on by having a lawyer review that contract before you sign it. Reasons to obtain a legal review of any contract include:

• Guaranteeing legality: You want to know your contract will stand up in court if necessary. A contract review will make sure all the terms used in the contract are indeed lawful and legal.
• Preventing misunderstandings: Having a lawyer review your contract will help ensure that all terms in the contract are clear. That prevents parties to the agreement from misunderstanding what they sign.
• Minimizing legal problems: By ensuring all terms in a contract are both legally binding and understood by the parties signing the agreement, a contract review makes it less likely that future legal issues will arise.

Whether you need to draft a contract or have received a contract to sign, you want to make sure you completely understand the terms and that the contract protects you legally. This is true of both business and personal contracts. Working with an experienced contract lawyer to review your contract will help you create a contract that does its job.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.